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Class Is a Five-Letter Dirty Word: The Lack of Class Consciousness in an Era of Record Inequality ~ the Conceptual Front

Friday, 01 February 2013 00:00 | By Anthony DiMaggio, Truthout |

Class Inequality: Until Americans' awareness catches up to the realities of the increasing US class divide, shrinking life opportunities for the majority and disappearance of social mobility, we will be unable to address the problems of high unemployment and economic stagnation.

It's no secret that inequality today is at its highest level since 1929. Countless commentators lament record high inequality as a danger to our society and to American prosperity - a point that even establishment papers like The New York Times are now acknowledging. In an October 2012 story, for example, the paper warned that " income inequality may take [a] toll on growth," and reported that " a growing body of economic research suggests that it might mean lower levels of economic growth and slower job creation in the years ahead."

Political scientists are focusing attention on the dangers of growing economic inequality as a threat to political participation. As income and wealth inequality increase, Americans are forced to work longer and longer hours to make ends meet. This leaves less time to pay attention to the news and the world around us, and it means that the poor and working class are less likely to follow politics, and less inclined to participate in basic civic obligations like voting. As political scientist Frederick Solt points out, it's no coincidence the United States has the highest levels of economic inequality in the first world, and the lowest level of political participation.1

(By Anthony DiMaggio and the Public Intellectual Project)

It's not difficult to understand the concerns of those who study this issue closely. Income inequality is at its greatest level since The Great Depression, with the top one percent of Americans capturing an astounding 93 percent of all annual income gains in the post-2008 era. This represents a dramatic acceleration of an already extreme trend from the 1980s through the 2000s, when the top one percent captured one-sixth of all income created, and the top 10 percent captured approximately one half of created wealth.

More than 30 years of extreme inequality in earnings have produced similar extremes concerning the concentration of wealth. Recent statistics suggest the top one percent of Americans hold 34.5 percent of all wealth. The top 10 percent hold 74.5 percent of all wealth, and the top 20 percent (one in five Americans) hold about 85 percent.2

Estimates for the rest of America are quite sobering as well: In the wake of the 2008 financial crisis, the bottom 40 percent of Americans are estimated to have zero percent of all wealth, while the bottom half hold a miniscule 1.1 percent.3

The dire state of income and wealth inequality has to do with more than simply earnings; It is also related to hidden taxes and costs that exist all around us. The Bush tax cuts account for much of the growth in inequality, as they were disproportionately directed at the wealthiest Americans. Research from the Economic Policy Institute suggests that by 2010, 38 percent of the Bush tax cuts were going to the richest one percent of Americans, while 55 percent were directed toward the richest 10 percent. This amounted to a massive subsidy for the wealthy (the 10 percent who make more than $170,000 a year), and to a disproportionate shouldering of the tax burden (compared to previous tax rates) for those who were not so lucky to get these large cuts.

Other hidden taxes take a major toll on the working and middle class too. The cost of food is a common complaint in that US food costs were exacerbated by extreme heat and weather events that resulted in double-digit growth in the cost of corn in the United States in 2012, amid the worst drought in more than a half-century.

Other mounting costs also operate as a tax on Americans; for instance, the escalating cost of higher education and health care. As The New York Times reported in October 2012, "In the last school year, tuition, fees, room and board averaged $38,589 at private colleges, up almost $15,000 from a decade earlier, according to the College Board. At public four-year colleges, the total bill came to $17,131, up more than $8,000."

Estimates of the cost of education vary by a wide margin, but all available figures suggest the cost has increased dramatically. Lower estimates suggest the cost of tuition at a four-year college or university, after controlling for inflation, increased by nearly 150 percent during the period from 1980 to 2011, while other estimates suggest a growth of tuition costs by more than 100 percent from 2000 to 2011 alone.(4) Similarly, available data suggests health care costs have grown radically, with one estimate suggesting a 700 percent increase in costs for private plans from 1969 to 2010.

The growth in cost of living and inequality is also a function of depressed wages. The United States lost roughly half of its manufacturing jobs between 1980 and 2010. These were high-paying jobs with strong union-based benefits that used to constitute the backbone of middle-class America. The assault on labor means that, while nearly one-third of Americans used to be a part of a labor union in 1945, that number fell to just over 10 percent by the late 2000s. As unions disappeared, so did the middle classe's share of income earned. Data from the US Census Bureau suggests that from the late 1960s to the late 2000s, there was a nearly one-to-one correlation between the decline in the percent of unionized Americans, and the decline in the share of all income that goes to the American middle class. Predictably, the share of income captured by the top one percent went up correspondingly during this period, as corporations dismantled domestic unions and the wage and benefit protections that accompanied them.5

Sadly, Americans are working longer and longer hours in the era of growing inequality. Bureau of Labor Statistics data suggests that the number of hours worked by married couples increased by about 20 percent from the early 1970s through the 2000s, despite the finding that the median family income stagnated, and despite a significant increase in labor productivity and corporate profits.6 These trends suggest that Americans' position has not stagnated; rather, most are in a much worse situation today because of growing health care, food and education costs, increased inequality, stagnating wages and increased work hours.

With the dramatic decline in the economic fortunes of most Americans, one would think that awareness of the growing class divide in the United States would be as pronounced as ever. Sadly, this is not the case. On one level, recognition of inequality and elite power is fairly high among Americans. For example, a December 2012 Pew Research Center poll found that 76 percent of Americans felt that "it's really true that the rich get richer while the poor get poorer." Similarly, a Pew survey from January 2012 revealed that 77 percent agreed "there is too much power in the hands of a few rich people and large corporations in the United States."

Results from the General Social Survey found that concern for inequality is longstanding, with approximately two-thirds of Americans regularly agreeing that "differences in income in America are too large" across the decade of the 2000s.

And yet, despite these findings, evidence suggests that Americans - while they are concerned about wealth inequality - are not sufficiently aware of the fundamental divide that exists within the American economic class system. Americans are concerned with growing inequality and with excessive corporate power, but they aren't aware of just how extreme the American wealth divide has become. This point was made clear in a 2011 Duke-Harvard study, which found that perceptions of inequality were far less extreme than actual inequality.

Surveying a nationally-representative sample of respondents, the study found that Americans thought that the wealthiest 20 percent retained 59 percent of all wealth, when in reality they held more like 84 percent (a 25 percentage point difference). Differences between perceptions and reality became even more extreme when comparing what Americans wanted the wealth distribution to look like, in contrast to what it looks like. Respondents said that the "ideal" wealth breakdown would allow the richest 20 percent just 32 percent of all wealth, compared to their actual 84 percent (an astounding 52 percentage point difference).

The above data suggest that Americans are not as aware of the chasm between haves and have-nots as they should be. If half of Americans share just 1.1 percent of all wealth, one would hope that most Americans would recognize this basic fact, as well as the reality that our country is increasingly divided between the haves (those who report some form of financial wealth) and the have-nots (those with zero financial wealth). Unfortunately, this is not the case for a strong majority of Americans. As of December 2011 (the last time the question was surveyed), the Pew Research Center found that nearly six in ten Americans (58 percent) rejected the idea that American society is " divided into two groups, the haves and the have-nots."

This finding seems all the more strange considering that just 46 percent of Americans categorized themselves as " haves," and nearly four in ten (38 percent) designated themselves as "have-nots" - strongly overlapping with the recent finding that 40 percent of Americans hold no financial wealth.

» To invest in America and create new jobs in the U.S. by building more affordable housing, re-building America’s schools and physical infrastructure, cleaning up our environment, and improving homeland security.

» To export more American products and not more American jobs and demand fair trade.

» To reaffirm freedom of association and enforce the right to organize.

» To ensure working families can live above the poverty line and with dignity by raising and indexing the minimum wage.

That would be a big start. Obviously I support it. So far we have seen continued corps and pols pull ALEC support. That must continue, but I think we are ready for the next step of agitating for repeal of ALL ALEC laws.

Well the Fairness Doctrine was pretty narrow and vague so broadcasters played fast and loose with it. There was an "Equal Time" requirement, so they would do there normal thing and then bring in some complete screwball to present the other side. It was a joke!

Imagine an hour of Rush, and then 5 minutes of Ross Perot! That's how random it was. And it gave the whole "FD" name a bad taste. Call and ask a radio talk show host and see.

Action on the Big Guns, like banks, will require a majority consensus. Right now, we have a majority disengaged (Lowest turnout on earth!). Hopefully real news and information would change that.

YES!!! Independent journalists need access and inclusion in the News Media world. Legitimacy and good wages!!! News Media are sealed from outsiders and rouge (non corporate) journalists. I speak from experience.

As President Obama begins his second term, he's not lacking for challenges, such as jobs, immigration and gun control, not to mention Afghanistan and Iran. Meanwhile, recalcitrant Republicans contest every move the president makes. But Obama's biggest challenge, economic inequality, gets little attention from many politicians.

To his credit, the president continues to decry inequality. In his second inaugural address, Obama said,
"[Americans] understand that our country cannot succeed when a shrinking few do very well and a growing many barely make it. We believe that America's prosperity must rest upon the broad shoulders of a rising middle class."

The president and most Democrats recognize the gap between the rich and poor is now as large as at any time in the last one hundred years. In 2011, the Congressional Budget Office found that between 1979 and 2007, "After-tax income for the highest-income households grew more than it did for any other group... 275 percent for the top 1 percent of households, 65 percent for the next 19 percent, just under 40 percent for the next 60 percent, and 18 percent for the bottom 20 percent."

Remarkably, Republicans don't seem concerned about the growing economic divide. Many conservatives, such as Arthur Okun, believe inequality is the price America pays for an efficient economy. They argue we shouldn't worry about inequality so long as there continues to be social mobility and the economy performs well. But the last twenty years has seen a dramatic decrease in mobility and a marked increase in economic instability.

In October, Berkeley sociologist Jerome Karabel published a paper detailing the decline in U.S. social mobility:

The most important thing happening (which adds to all these tactics) is the center left coalition that has been given new life.

Progressivism is reborn! Many groups are more active than ever before. If we are to succeed at improving the lives of the working/middle class we must continue the work of building this critical coalition.

As the US engages in military and intelligence overreach to try and preserve its role as the sole post-cold war empire, Noam Chomsky continues to offer trenchant analysis of how American hegemony is a self-destructive force to the nation – and at times a lethal world police force to maintain its position of privileged consumption.

In his latest book, Power Systems, Chomsky reflects on outbreaks of democracy in the world and a declining ability of the United States to control nation-states who are important economic markets, energy suppliers, and geo-political allies that are vital to the US empire.

Excerpted from Power Systems: Conversations on Global Democratic Uprisings and the New Challenges to U.S. Empire by Noam Chomsky in interviews with David Barsamian. The following section is from the first chapter, "The New American Imperialism." It begins with Barsamian reflecting on a talk given by Arundhati Roy that he and Chomsky attended.

Barsamian: We were both at a talk that Arundhati Roy gave at Harvard describing the rather extraordinary amount of resistance to neo-liberal policies in India. There is a tremendous amount of push-back. I wrote to Howard Zinn about her talk. He wrote back to me, in one of the last e-mails I received from him, "Compared to India, the United States seems like a desert."

Noam Chomsky: It wasn't at one time. If you go back to the nineteenth century, the indigenous population of the United States resisted. In this respect, the United States is a desert because we exterminated the native people. The United States won that war. By the end of the nineteenth century, the indigenous people were essentially gone. India is now in the stage the United States was in during the nineteenth century.

Barsamian: I'm thinking more of workers here who have lost their jobs, who have lost their pensions and benefits. At a talk you gave in Portland, Oregon, called "When Elites Fail," you decried the fact that the Left has not been able to mobilize dissent. The Right has certainly been able to.

Noam Chomsky: That's true. But I don't think India is a good comparison. Earlier periods in U.S. history are a better comparison.
Take, say, the 1930s. The Depression hit in 1929. About five years later, you started getting real militant labor organizing, the forming of the Congress of Industrial Organizations, sit-down strikes. That's what basically impelled Roosevelt to carry out the New Deal reforms. That hasn't happened in the current economic crisis. Remember the 1920s were a period when labor was almost completely crushed. One of the leading labor historians in the United States, David Montgomery, has a book called The Fall of the House of Labor. The rise of the house of labor was from the nineteenth-century militants on through the early-twentieth-century labor agitation that was crushed by Woodrow Wilson, who was as brutal internally as he was externally. The Red Scare almost decimated the workers' movement. That was the 1920s. There was a change in the 1930s, in the course of the Depression. But it took quite a few years. And the Depression was much worse than the current recession. This is bad enough, but that was much worse.

And then there were other factors. For example, we're not supposed to say it, but the Communist Party was an organized and persistent element. It didn't show up for a demonstration and then scatter so somebody else then had to start something else. It was always there—and it was in for the long haul. That's not the type of organization we have now. And the Communist Party was in the forefront of civil rights struggles, which were very significant in the 1930s, as well as labor organizing, union struggles, union militancy. They were a spark, which is lacking now.

Barsamian: Why is it lacking?

Noam Chomsky: First of all, the Communist Party was totally crushed. In fact, the activist Left was crushed under President Harry S. Truman. What we call McCarthyism was actually started by Truman. The unions did grow in size, but they grew as collaborationist unions. That's one of the reasons why, say, Canada, a very similar country, has a health care system and we don't. In Canada, the unions struggled for health care for the country. In the United States, they struggled for health care for themselves. So if you're an autoworker here in the United States, you had a pretty good health care and pension system. Union workers won health care for themselves in a compact with the corporations. They thought it was a deal. What they couldn't see was that it's a suicide pact. If the corporation decides the compact is over, then it's over. Meanwhile, the rest of the country didn't get health care. So now the United States has a completely dysfunctional health care system, while Canada has one that more or less works. That's a reflection of different cultural values and institutional structures in two very similar countries. So yes, the working class did continue to develop and grow here, but with class collaboration, that is, in a compact with the corporations.

You may recall in 1979, Doug Fraser, who was the head of the United Auto Workers, gave a speech in which he lamented the fact that business was engaged in what he called "a one-sided class war" against working people. We thought we were all cooperating. That was pretty dumb. Business is always engaged in a one-sided class war, especially in the United States, which has a very class-conscious business community. They're always militantly struggling to get rid of any interference with their domination and control. The labor unions went along with it. They benefited their own workers temporarily. Now they're paying the penalty.

Sanders’ bill and a companion measure to be introduced in the House by Rep. Jan Schakowsky would yield more than $590 billion in revenue over the next decade, according to the Joint Committee on Taxation.

Our growing income inequality causes 43% of the projected Social Security shortfall

2/5/2013 10:00am by Gaius Publius

Upward redistribution of income — what we’ve been calling the “looting of the economy” by the billionaire CEO class — is responsible for at least 43% of the projected Social Security shortfall for the next 75 years.

Let that sink in. This is yet another way that the looters want the victims to pay for their victimhood and hold the looters lossless. The CEO class has worked for three decades to create an economy where working people have a far less share of the economic growth than they used to have. One of the results of that inequity was an unexpected shortfall in the income collected by Social Security.

Think about it — everyone could see that the big demographic shift, the baby-boom generation, would show up on schedule. They could see that in the 1950s. But who knew 30 years ago (1983, if you’re not subtracting quickly), when the last Social Security adjustment occurred, that Reagan, Clinton, Bush and Obama would create a bipartisan consensus around handing all the fruits of productivity to the “rich and famous” set that you’re not a part of? That was not part of the calculation in those golden Reagan Days, and the Social Security Trust Fund has suffered ever since.
What changed that they didn’t take into account?

As I said, they saw the baby-boomers coming from 10 miles away (or 50, if each mile is a year). The single item they didn’t account for was the increasingly-lower percent of income captured by the Social Security salary tax. In 1983, the year of the Greenspan commission, that share of income was 90%. Dean Baker, the source of this information (my emphasis):

The Shocking Ways America Punishes Poor People Living on the Street (Hard Times, USA)

Laws all over the country are designed solely to target the homeless. There are better solutions.

February 2, 2013 |

Editor's note: There are more than one million homeless people in America and 138 million people who live paycheck to paycheck. Many more are struggling, wondering how they'll make rent or get enough food. Those numbers are astounding. This is America. Many proudly think our society is fair, but the evidence overwhelmingly shows that fairness in America is a myth. In the weeks and months ahead, AlterNet will shine more light on America's economic injustice in an ongoing series, Hard Times USA. Since many have chosen to look aside, or think the traditional ways of doing politics will fix things, there is still much to learn about how this problem will be solved, or not solved.

We are launching our ongoing series with two articles today: Part 1, below, looks at how America punishes poor people living on the street, part of a larger pattern of dealing with poverty through criminalization rather than social and policy fixes that have been shown to work better. Part 2 addresses the growing apathy toward the plight of the poor, after decades of conservative demonization. As the gap between the wealthy and the poor keeps growing, there is a sense that more and more people don't want to deal with the poor. Is that how you want our society to be? What's your role? It's time to rethink poverty. Part 3 in our series, running on Wednesday, looks at copper theft as a means of survival in California's poorest city. Part 4 will look into the psychology of how people react when they encounter street homeless. Much more to come.

-- Don Hazen, executive editor of AlterNet

In 2008, Atlanta police orchestrated an unusual sting: officers shed their uniforms to go undercover as tourists and office workers, a stunt designed to entrap beggars in the city's tourist areas. Forty-four people were arrested for panhandling in one month. The best part about the sting, police officials said at the time, according to the Atlanta Journal Constitution, was that while actual tourists rarely bothered to come back to testify about their terrible abuse at the hands of the city's beggars, the undercover cops would make for enthusiastic witnesses. At the time, Atlanta had banned panhandling within 15 feet of an ATM, bus stop, taxi stand, payphone, public toilet -- and anywhere after dark.

Life Among the Plutocrats -- What Unimaginable Wealth Does to a Person

They control our politics, shape our societies, outsource our jobs.

January 4, 2013 | By Crawford Kilian

Reviewed:Plutocrats: The Rise of the New Super-Rich and the Fall of Everyone Else, by Chrystia Freeland (Doubleday, Canada 2012)

Last year the Occupy movement brought the subject of inequality into public debate, and especially the inequality between those of us in the 99 per cent and the happy few in the one per cent. But Chrystia Freeland has been studying the happy few for years, and has spent many hours talking with some of their most famous and powerful members.

The result is a book full of surprises and insights. Today's plutocrats are the latest variation on an old theme, and at the same time they're strikingly new in many ways.

Societies have supported plutocratic classes at least since ancient Rome, and the Gilded Age of the US after the Civil War presaged our own: A rising class of self-made men, imaginative exploiters of new technology and wider trade. Then it was the telegraph and the railroad; now it's the internet and the container ship.

Freeland's plutocrats are mostly self-made also, and overwhelmingly male; one very rich man suggested to her that women lack the "killer instinct" needed for real success. But they are not the idle heirs of rich parents. The "working rich" are a distinct class: smart, ambitious and often outsiders.

What's more, they represent a dramatic change from the 19th and early 20th century, Freeland argues. Then, the conflict was between capital and workers, with workers doomed to lose because they couldn't own the means of production.

The communist revolutions were supposed to transfer those means to the workers, but instead transferred them to a new class of upstart intellectuals and technical experts. She cites Milovan Djilas, Tito's second in command in communist Yugoslavia. In the 1960s Djilas wrote "The New Class" to describe this phenomenon as a corruption of communist orthodoxy; Tito threw him in jail.

They didn't come entirely out of the blue. Freeland documents the gradual but decisive shift in fields like finance, which since the age of the superstar had been regulated to the point of boredom. This came along with a new struggle: Now it wasn't capital versus labour, but capital versus talent.Even more ironically, the same new intellectual class now runs capitalism -- with the exception of the princelings of the Chinese Communist Party, the billionaire sons and grandsons of Mao's old proletarian comrades. But elsewhere, smart young men got possession of ex-Soviet resources, or an operating system for newfangled personal computers, and within months were rich beyond imagining.

The age of the superstar

Companies were no longer stuck with local workers and their high wages. Globalization meant they could outsource the work to anywhere in the world, whether Chinese special economic zones or Mexican maquiladoras.

And by the 1970s we were in the age of the superstar: the baseball player, singer, or CEO whose talent could make the difference between corporate success and failure. Talent couldn't be bolted to the shop floor, and superstars in any field could name their price.

WASHINGTON — Why are so many American families trapped in poverty? Of all the explanations offered by Washington’s politicians and economists, one seems particularly obvious in the low-income neighborhoods near the Capitol: because there are so many parents like Carl Harris and Charlene Hamilton.
Time and Punishment

John Tierney, the Findings columnist for Science Times, is exploring the social science of incarceration. Articles in this series are looking at the effects of current policies on families and communities, and new ideas for dealing with offenders.

Carl Harris, 47, whose days as a crack dealer ended at age 24, when he started two decades behind bars, playing with his dog at home in Washington.

For most of their daughters’ childhood, Mr. Harris didn’t come close to making the minimum wage. His most lucrative job, as a crack dealer, ended at the age of 24, when he left Washington to serve two decades in prison, leaving his wife to raise their two young girls while trying to hold their long-distance marriage together.

His $1.15-per-hour prison wages didn’t even cover the bills for the phone calls and marathon bus trips to visit him. Struggling to pay rent and buy food, Ms. Hamilton ended up homeless a couple of times.

“Basically, I was locked up with him,” she said. “My mind was locked up. My life was locked up. Our daughters grew up without their father.”

The shift to tougher penal policies three decades ago was originally credited with helping people in poor neighborhoods by reducing crime. But now that America’s incarceration rate has risen to be the world’s highest, many social scientists find the social benefits to be far outweighed by the costs to those communities.

“Prison has become the new poverty trap,” said Bruce Western, a Harvard sociologist. “It has become a routine event for poor African-American men and their families, creating an enduring disadvantage at the very bottom of American society.”

Among African-Americans who have grown up during the era of mass incarceration, one in four has had a parent locked up at some point during childhood. For black men in their 20s and early 30s without a high school diploma, the incarceration rate is so high — nearly 40 percent nationwide — that they’re more likely to be behind bars than to have a job.

No one denies that some people belong in prison. Mr. Harris, now 47, and his wife, 45, agree that in his early 20s he deserved to be there. But they don’t see what good was accomplished by keeping him there for two decades, and neither do most of the researchers who have been analyzing the prison boom.

The number of Americans in state and federal prisons has quintupled since 1980, and a major reason is that prisoners serve longer terms than before. They remain inmates into middle age and old age, well beyond the peak age for crime, which is in the late teenage years — just when Mr. Harris first got into trouble.

‘I Just Lost My Cool’

After dropping out of high school, Mr. Harris ended up working at a carwash and envying the imports driven by drug dealers. One day in 1983, at the age of 18, while walking with his girlfriend on a sidewalk in Washington where drugs were being sold, he watched a high-level dealer pull up in a Mercedes-Benz and demand money from an underling.

“This dealer was draped down in jewelry and a nice outfit,” Mr. Harris recalled in an interview in the Woodridge neighborhood of northeast Washington, where he and his wife now live. “The female with him was draped down, too, gold and everything, dressed real good.

“I’m watching the way he carries himself, and I’m standing there looking like Raggedy Ann. My girl’s looking like Raggedy Ann. I said to myself, ‘That’s what I want to do.’ ”

Within two years, he was convicted of illegal gun possession, an occupational hazard of his street business selling PCP and cocaine. He went to Lorton, the local prison, in 1985, shortly after he and Ms. Hamilton had their first daughter. He kept up his drug dealing while in prison — “It was just as easy to sell inside as outside” — and returned to the streets for the heyday of the crack market in the late 1980s.

The Washington police never managed to catch him with the cocaine he was importing by the kilo from New York, but they arrested him for assaulting people at a crack den. He says he went into the apartment, in the Shaw neighborhood, to retrieve $4,000 worth of crack stolen by one of his customers, and discovered it was already being smoked by a dozen people in the room.

“I just lost my cool,” he said. “I grabbed a lamp and chair lying around there and started smacking people. Nobody was hospitalized, but I broke someone’s arm and cut another one in the leg.”

An assault like that would have landed Mr. Harris behind bars in many countries, but not for nearly so long. Prisoners serve significantly more time in the United States than in most industrialized countries. Sentences for drug-related offenses and other crimes have gotten stiffer in recent decades, and prosecutors have become more aggressive in seeking longer terms — as Mr. Harris discovered when he saw the multiple charges against him.

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TIME AND PUNISHMENT

A Family’s Sentence

A version of this article appeared in print on February 19, 2013, on page D1 of the New York edition with the headline: Prison and the Poverty Trap.

Changes in tax law that reduced the federal tax rate on capital gains income is “by far the largest contributor” to rising income inequality in the United States, according to a new paper from Thomas Hungerford, an economist at the Congressional Research Service.

Capital gains and other investment income was taxed as regular wage income from 1986 until 1996, when the capital gains rate was reduced. It was further reduced as part of the Bush tax cuts, and over the last decade, it has reversed the equalizing effects of taxes and allowed for massive income gains for the wealthy that translated directly into increased income inequality:

By far, the largest contributor to this increase was changes in income from capital gains and dividends. Changes in wages had an equalizing effect over this period as did changes in taxes. Most of the equalizing effect of taxes took place after the 1993 tax hike; most of the equalizing effect, however, was reversed after the 2001 and 2003 Bush-era tax cuts. [...]

The large increase in the contribution of capital gains and dividends to the Gini coefficient, however, is due to the large increase in the share of after-tax income from capital gains and dividends, and to the increase in the correlation of this income source with after-tax income.

Hungerford’s findings are similar to a study he produced for the Congressional Research Service in 2011, which found that while income grew 25 percent from 1996 to 2006 for all Americans, it grew 74 percent for the top 1 percent and 96 percent for the top 0.1 percent. That study also found that tax cuts on capital gains were the biggest driver of the disparity.

The capital gains rate increased to 20 percent at the beginning of 2013, and top earners will pay an even higher rate because of a surcharge to help pay for Obamacare. Still, the rate remains far lower than the top income tax rate, even as inequality in America is now comparable to countries like Pakistan and the Ivory Coast. (HT: Greg Sargent)